The vast majority of companies have already reported this earnings season, but there are still some big stocks left to report, and this week retailers will be in focus.
With the earnings season effectively finished, we can conclude that it was a fairly positive quarter. Companies in the S&P 500 reported slightly over 25% year over year earnings growth, and an 8.4% increase in revenues. Around 78% of the companies beat earnings estimates with 64% posting better than expected sales for their recent quarter.
While the earnings season has been strong, the market has failed to really enjoy an earnings rally for a few different reasons. For one, analysts are concerned about stalling earnings growth moving forward. Rising interest rates will remain a weight on the overall market, as will concerns over a trade war between the U.S. and China.
As we quickly approach the holidays, retail is on everyone’s mind. Early signs point to a strong start to the holiday shopping season, but the true picture of holiday spending will not be available until early next year.
This week’s quarterly reports will feature several big retailers whose reports will either boost investor confidence through the holiday season or raise reasons for concern that could prevent a late-year rally in the sector.
At Home (HOME)
Home goods retailer At Home (HOME) will report its third-quarter results on December 6 before the market open. HOME was a strong performer in 2017 and the first half of 2018 in sympathy to strength in the housing market, but the stock has trended lower the last six months as rising interest rates have hurt housing-related stocks.
Home Depot (HD) and Lowe’s (LOW) both rallied after their recent quarterly reports which is a good indicator that At Home could enjoy a nice rally if results top estimates. Analysts forecast earnings of 15 cents per share, but the street expects a small earnings beat with a whisper of 16 cents for the quarter. HOME is trading in the lower end of its 52-week range at $29.06 while analysts have an average price target of $42.57 on the stock.
Big Lots (BIG)
Discount retailer Big Lots (BIG) has been stuck in a tight sideways trend for the majority of the year after shares took a big hit during the first quarter. The company has reported weaker than expected profits each of the last two quarters, and will report its third-quarter numbers before the market open December 7. The consensus calls for earnings of $0.00, but the street’s whisper number calls for a penny profit for the quarter. During the same period last year the company earned 6 cents per share. Earnings have fallen the last two quarters and barring a huge earnings beat this quarter, Q3 will be the third straight report with a year over year profit decline.
The good news for investors is that there is already a lot of negative sentiment priced into the stock. BIG has a low forward P/E of 9.1, so the earnings drop has already been priced into the stock and there is limited downside risk barring a huge earnings miss, and decent amount of upside potential in the wake of a stronger than expected set of numbers. Analysts see upside. BIG trades at $43.68 with an average price target of $49.00.
American Eagle Outfitters (AEO)
American Eagle Outfitters (AEO) last reported earnings in August that topped estimates on both the top and bottom line, but the company issued Q3 guidance that was weaker than the market expected. The company guided earnings in a range of 45 cents to 47 cents. The teen retailer will report Q3 numbers after the market close December 11, and the consensus currently calls for profits of $0.47 for the quarter, but the street expects a penny earnings beat of 48 cents.
Wall Street is always quick to punish or reward apparel retailers in the teen sector since teen fashion can change so quickly. AEO’s quarterly report will paint a clearer picture as to how well teens are relating to the company’s products and whether the company can expect a strong holiday season. Analaysts see a lot of upside in the stock and a better than expected report could result in a big rally depending on what sort of guidance the company offers for the current quarter. AEO trades at $21.11 with an average price target of $26.67.
Lululemon Athletica (LULU)
Athletic apparel retailer Lululemon Athletica (LULU) reports its third-quarter numbers after the market close December 6, with the consensus calling for earnings of $0.69 per share. LULU has a six-quarter streak of earnings beats, and the street expects that street to continue this quarter with a whisper number of $0.71 per share. Foot Locker (FL) gapped higher following its recent report, and Dick’s Sporting Goods (DKS) moved slightly higher after a mixed report with sales falling a bit shy of the consensus. Earnings beats from both Foot Locker and Dick’s is a positive indicator for Lululemon’s upcoming report. LULU was a strong outperformer the first nine months of the year, but the stock lost value in October and November in sympathy to volatility in the overall market.
After such a strong run during the first three quarters of the year, a lot of the recent selling can be tied to profit taking as the stock’s valuation rose a bit too high. LULU’s forward P/E remains a little high at 32, which is high, but takes into account analysts expect earnings growth 24% per annum over the next five years. LULU is priced for perfection, so there is a decent amount of downside risk on any signs of weakness in the quarterly report. LULU stock trades at $139.11 with an average price target of $166.42.
Marvel Technology (MRVL)
Marvel Technology (MRVL) is a semiconductor company. The entire sector was very strong in 2016 and 2017, but sentiment has cooled on chip stocks with the current trade war between the U.S. and China which could significantly impact chip demand moving forward. Marvel reports third-quarter numbers after the market close December 4 with the consensus calling for earnings of $0.32 per share, down from $0.34 during the same period last year. The street is not as optimistic for the quarter, with a whisper number of just 30 cents. The company reported weaker than expected earnings last quarter while sales were sharply above the consensus. This quarter the street expects another small miss with a whisper number of 30 cents for the quarter.
MRVL has been in a downward trend for the last nine months which has lowered its forward P/E to an oversold level of 10.7. With such a low valuation the stock could enjoy a nice bounce if Marvel is able to hit the consensus, especially since the street’s whisper number is lower at just 30 cents. Analysts do see significant upside in the stock. MRVL trades at $16.44 with an average price target of $26.20.